Al Khaleej Sugar Company (AKS) of Dubai plans to raise production capacity by 40 per cent and achieve greater bagging capacity to meet demand from growing markets within the Middle East and internationally.
The company currently has capability to produce 5,000 tonnes per day, nearly double the capacity that existed when the company first began operations in 1995 in the Jebel Ali Port area.
AKS general manager Cyrus Raja said the company planned to raise daily capacity to 7,000 tonnes but did not say when that would happen.
Raja also said future innovation and improvements would include investing in Bibo (bulk in, bag out) in which a vessel is loaded with bulk sugar and accomplishes bagging while sailing. “This reduces cost as the rate of loading bags is 2,000 tonnes per day while in bulk form we can load 35,000 tonnes,” said Raja. Importing parties would have the option of receiving their supplies in bags or bulk.
AKS has its own berth. It also has the world’s largest storage capacity for raw sugar at 1 million tonnes.
“Our business model has been to bring in raw sugar from Brazil and refine it into white sugar,” says Raja. “Normally sugar refineries are located in countries where there is huge domestic consumption and preferably duty exemption, for example, refineries located in Saudi Arabia and Nigeria. The reason why we put up a refinery here is that the Middle East is structurally deficit in sugar while the population has a sweet tooth. Because of climatic conditions they can never grow sugarcane or beet over here to the extent required. The deficit will always be there and continue to grow with the rapidly growing population.”
The per capita consumption of sugar in the Middle East is 34 kg per person per year against the world average of 24 kg.
While AKS’ annual capacity is around 1.5 million tonnes, domestic consumption is around 200,000 tonnes leaving a very large surplus for exports to about 40 countries.
The company says capacity expansions have been achieved over the years not by adding more equipment but by continuous innovation. “We have been innovating both technically and commercially,” says Raja.
FOB model embraced
The official explained that prior to commencement of AKS operations, the normal model followed by refineries was that the seller of raw sugar would handle freight. “But we pushed for FOB (free on board) under which freight would be handled by us, giving us the opportunity to trade the raw sugar profitably.”
Another important step AKS took was to forge direct partnerships with producers including one with a leading Brazilian company.
“This partnership is not a pure buyer-seller relationship. But we strive to improve raw sugar quality, and we now have something called very very high polarisation (VVHP) sugar. This is a product we developed together with the producer and it has benefited both the producer (as they get a better price) and us (as the product reduces our production cost and gives us a higher yield),” said Raja.
Freight was also a key costing element as the exercise involved bringing raw sugar from Brazil, transporting it to Dubai and exporting it to various markets. “Before we started operations, the best discharge rate for a vessel was 8,000 tonnes per day but today we do 32,000 tonnes and this is the only place in the world where vessels are discharged at this rate. So we get a more competitive freight cost as the vessel is at berth for a shorter time,” Raja said.
An advantage the company enjoys is the huge storage capacity it has built. Raja observes that a refiner’s ability to buy in advance when the price is low for sale in the future is key. But the advantage can be realised only if the storage capacity meets sales aspirations.
Flexibility has helped AKS conduct its business successfully. “We normally buy raw sugar from Brazil but last year India produced raw sugar in surplus and exported it. The year was also a boom time for the freight industry with rates at their peak. By importing from India we saved more than half the usual freight costs.”
Costs have also been down because of location advantage. The refinery’s Jebel Ali base has much container inflow. Full containers come in and go back empty, so AKS is able to obtain very competitive rates, sometimes almost zero freight to the Far East when it may just have to pay the terminal handling charge.